Another Federal Budget is looming and once again the death knoll for negative gearing can be heard. The catalyst for these rumours, yet again, is the overheated housing market.
The policy intent of negative gearing is to increase the demand and, in consequence, the supply of residential housing. In turn, an abundant housing supply should place downward pressure on prices in both the owner and rental markets.In practice, we recommend our clients structure a negative gearing property strategy around their earning lifecycle.
This approach provides the following tax benefits for our clients:
Income is sheltered from higher rates of tax;
Any capital gain when the property is disposed will be exposed to lower marginal tax rates and will also be subject to the discounting provision; and
Tax is deferred until realisation, facilitating optimal wealth accumulation.
In the current environment, soaring house prices indicate that demand is far outweighing supply. With the pension age now likely to be pushed back to 70 years, we will soon see the average earning lifecycle become longer and negative gearing property strategies causing further increases in “housing lock-up”, limiting supply and causing greater upward pressure on prices.
However, given property ownership and negative gearing is such an embedded part of the Australian psyche, it will be very surprising if the current Abbot lead coalition will be willing, as the Keating government was in the early 90s, to tamper with this politically problematic tax preference.
Please contact our office for an update on any changes to negative gearing following the Federal Budget release on 13 May 2014. Phone 8071 0300
CABEL Partners is a boutique Chartered Accounting firm offering accounting and audit services to small to medium enterprises, individuals and not for profit organisations. We specialise in specialist tax advice and start up business mentoring. CABEL Partners knows what you want! CABEL Partners will provide certainty and complete your work with clear and regular communication, transparency, and a pro-active attitude.
Email - email@example.com Office: 02 807 10 300 A: Level 5, 1 James Place, North Sydney 2060